If you've been following the MBS Commentary, you know what a big deal this afternoon could be. Markets have been preparing for it for weeks and MBS Live members have been on top of those movements every step of the way.

This afternoon, when markets are convulsing mere milliseconds after the Fed Announcement, MBS Live members will know what's going on before anyone else. The accuracy and speed of our real-time price stream and alerts is unmatched.

MBS prices were slightly lower out of the gate this morning as markets whipped around on a moderate resurgence of tradeflows after weather and holidays sidelined market participants yesterday. It seemed fairly tolerable, especially relative to weakness in Treasuries which were noticeably having a tougher morning. Fannie 3.0's dug their heels in at the 103-00 technical support level and even allowed some optimism to creep in as broader bond markets began moving decisively lower in yield heading into the noon hour. On the way down, the rally quickly gave itself away as driven by short-covering and 10yr yields found themselves back in line with the morning highs in fairly short order. MBS were less keen to outperform in the afternoon (pretty standard) and 3.0s slipped to 102-30 by 3pm, prompting several lenders to reprice negatively. Economic data arrives tomorrow with Retail Sales and the auctions get much more interesting with 10yr Notes at 1pm.

MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this afternoon.

2:24PM :
ALERT ISSUED:Incremental Increase In Negative Reprice Risk

Not much to report by way of material market movers. Movement itself continues to trend in the same direction it's been trending all day, with the 11am-1pm time frame of frenzied short-covering now standing out as a clear outlier to the underlying trend. 10yr yields are near their highs and MBS are at their lows, down 5 ticks on the day at 102-31. Negative reprices are incrementally more likely here for a handful of lenders. Nothing to warrant widespread panic.

1:17PM :
ALERT ISSUED:MBS Back to Lows After Auction, But Not Because Of It

As has been the case, the 3yr Auction had no impact on longer-dated Treasuries or MBS, though bond markets are selling off as if driven by an economic event (such as data or an auction). In truth, 10yr yields were already trending higher heading into the auction. The path higher was made easier by the fact that previous strength was merely the result of heavy short-covering on a technical break between 11am and noon.

A few bigger flows have been hitting in the past few minutes, essentially bringing 10's back in line with morning yield levels and washing out the short-covering rally. MBS are innocent bystanders, not moving around quite as much as Treasuries (themselves doing their best to avoid being overly influenced by fresh 5+ year highs for equities).

Fannie 3.0s are down 3 ticks on the day at their lows of 103-00 (actually, they briefly touched 102-31+). Whatever the case, negative reprice risk is slightly elevated--not necessarily because of the outright different in prices between now and rate sheet time, but because the trend is such that a few lenders may consider a preemptive reprice into the ostensible weakness.

It's important to keep your lender's specific past precedent in mind (to whatever extent you know it). Some lenders can't be bothered by a measly 4 tick trading range in MBS and are nowhere near considering a negative reprice. A very small minority of others may actively be considering it right now, simply due to the negative trending. It would take a few more ticks of a drop into the 102's for most lenders to consider it though.

11:09AM :
Stocks Taking Over Where Currencies Left Off

earlier this morning, ECB's Draghi said "I think the term currency wars is way, way over done. We are not witnessing anything like that." That may be true, or it may be a matter of defining the word "war."

Clearly, global interconnectedness between currencies and markets is an increasingly hot topic for several years. This has been even more pronounced since the onset of the most recent phase of the EU Crisis beginning in late 2011. For instance, The long term low in the Euro in July coincided with the all-time low 10yr Treasury yield. Early February highs in TSY yields coincided with 14 month highs in the Euro.

The connectivity isn't omnipresent, and it's not rocket science considering the "risk-on / risk-off" trading patterns include the EU as well as the domestic economic and FOMC policy situations in the US. But central bankers--simply in addressing the term "currency war," give it more credence.

Euros surged in the early AM, and really set the tone for the day. Japanese officials commented on the Yen just before 9am creating a big swing lower in JPY/USD (stronger Yen) and there was a palpable response in bond markets (albeit on a much smaller scale).

Equities took over as the directional guidance giver of choice after the cash open, but the recent spat of Euro strength (on Draghi comments) helped stocks find their footing after 10:40am. Yields were following stocks lower until then and have gone sideways while the "risk-on" mini-bounce took place.

Scheduled Fed Treasury purchases just came through and this looks to be doing more good than harm at the moment with 10's down to 1.975. MBS, however, remain at their session lows with Fannie 3.0s down 3 ticks at 103-00, putting them more in line with the preexisting weakness in Treasuries that they'd, thus far been able to outperform. A caveat to this comment on Treasury stability: it's tenuous, and looks predisposed to keep a wary eye on equities and--though Draghi might be cranky about it--even currency gyrations.

Ted Rood : "Fed would be the one dealing with that, TN. Doubt there's any reference (direct or indirect) to it tonight."

Thomas Nelson : "MG, If the president hints tonight at QE4 (no idea if that happens)..........would that help or hurt us?"

Matthew Graham : "in unrelated news, stocks are apparently trying to shoot the moon.and Treasuries are open to suggestion after the short-covering festival roughly an hour ago. Just moving back to where we came from."

Matthew Graham : "3yr Auction results in 5 minutes. Recent average bid-to-cover is 3.59 with a range of 3.36 to 3.96. Last two February 3's auctions have been slightly higher than expected in terms of the auction's awarded yield vs 1pm 'when-issued' trading. Indirect bidding averages 26.1%"

Brayden Alexander : "MG anything expected out of this auction ?"

Jason York : "late to the question, but on the question about deposits into a donor's account on an FHA loan, my UW says that FHA doesn't require donar ability anymore but you will need the cleared check, deposit slip and account statement showing it in their account in addition to the Gift letter"

Rob Clark : "REPRICE: 12:25 PM - Provident Funding Better"

Matthew Graham : "short covering doesn't really make for a convicted stay at lower yields, in other words."

Matthew Graham : "Quick note on the bounce in Treasuries. The swing lower heading into noon was heavily driven by short-covering. While that doesn't necessarily predict the future, it just speaks to the fact that the mini-rally was driven by accounts who were betting on higher yields simply booking their profits. Real money long positions are selling now."

Nathan Stotlar : "Chip - Yes, they want to know the money came from the dad and not thru his account from someone else."

Chip Harris : "Does FNMA require a Dad who is giving a gift document every deposit in his account? I didn;t think that rule carried over to the person giving the gift. I have an underwriter that wants a self employed Dad who is not on the loan to provide copies of every deposit."

About the Author

A former originator, Matthew began writing for Mortgage News Daily in 2007, covering a wide range of topics. Seeing a need in the marketplace, his focus increasingly shifted toward relating MBS and broader financial markets for loan originators.
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